Seller’s credit, also known as the seller’s concession, is a financial agreement in which the home seller agrees to cover some of the buyer’s closing costs. Sellers will provide credits at closing to reduce the buyer’s upfront costs, rather than lowering the price of the house.
This strategy can make more affordable and attractive homes more attractive, especially in competitive markets like Austin and Atlanta. This Redfin guide explains how seller credits work, when to use them, and what to pay attention to during negotiations.
What is Seller’s Credit?
Seller’s credit is money that the seller agrees to contribute to the buyer’s closing costs. It is usually negotiated as part of a purchase agreement and applied upon closing to cover eligible fees such as:
Lender and Loan Origination Fees Insurance Escrow or Lawyer Fees Prepaid Tax and Homeowner Insurance
Example: You are buying a $400,000 home and negotiating a $10,000 seller credit. When closed, $10,000 will be directed towards closing costs, reducing the amount of cash needed. Sellers still receive $400,000 on paper, but take home $390,000 after credit.
Why do sellers offer credit?
Sellers may offer the following credits:
Avoid repairs by offering money instead of fixing issues attracting buyers in slower markets.
This is a negotiation tool that helps both parties meet in the middle.
How much can a seller contribute?
Seller’s credit limits vary depending on the type of loan and the buyer’s down payment. For example, traditional loans typically allow sellers to make 3%-6% concessions, while FHA and USDA loans allow up to 6%, while VA loans limit 4% contributions. It is essential to work with lenders and agents to ensure that your credit remains within acceptable limits. Otherwise, excess could simply be confiscated.
Buyer’s pros and cons
Strong Points:
Reducing the advance cash required to close can help ease fees such as lenders’ fees and insurance.
Cons:
If the seller has a stronger offer, then it may be less competitive in the hot market that you need to assess the offer at full value
Seller’s pros and cons
Strong Points:
Make anything that helps you move the transaction forward without lowering the list price, especially if repairs are needed.
Cons:
Reducing your online revenues can show flexibility and open the door to more negotiations
Last note about seller credit
Seller’s credit can make a big difference in how affordable your home is when it closes. If you’re buying, it’s worth discussing with a real estate agent, especially if your home needs repairs or if the market prefers buyers. If you are selling, credits may help you attract offers faster without lowering your list price.
When used strategically, these credits help both parties reach smoother and more affordable transactions.
Seller’s Credit FAQ
What is the credit of the house seller?
Seller’s credit is when the home seller agrees to pay a portion of the buyer’s closing costs. It reduces the amount of cash that buyers need to bring to the closure, but does not lower the selling price of the home.
Does the seller’s credit come out of the seller’s pocket?
Yes, but indirectly. Sellers receive a lower net profit from sales as a portion of the revenue is allocated to the buyer’s expenses. However, it is usually paid at the time of closing and not upfront.
Can seller’s credit be used for down payment?
No, it cannot be applied to a down payment. They are limited to closure fees and prepaid fees, as permitted by the buyer’s loan type.
Is the seller’s credit the same as lowering the selling price?
It’s not accurate. Lowering the price will affect the amount and valuation of the loan. It keeps the selling price intact, but helps buyers pay the upfront costs. This makes trading easier.
How many credits are there?
It depends on the type of loan. Typically, traditional loans cost between 3-6%, FHA up to 6% and VA up to 4%. Generally, amounts that exceed the actual closing costs cannot be used and may be confiscated.
